Carson Block has spent the past five years seeking his fortune in China. With some Mandarin under his belt, he practiced law for a year, conducted research for hedge funds and for his father, a U.S. investor, and even started a self-storage venture. But Block, 34, seems to have hit his stride with Muddy Waters Research, an online service he launched in June 2010 to expose what he describes as misstatements and fraud at small Chinese companies trading in the U.S.
Typically, these companies secure listings on U.S. exchanges by merging with U.S.-listed shell companies, a maneuver that enables them to fall between the regulatory cracks. The poor performance of many so-called reverse-merger stocks was scrutinized by Barron’s last summer (“Beware This Chinese Export,” Aug. 30, 2010), and the Securities and Exchange Commission now is investigating possible abuses in this market.